December 06, 2009

Structured Settlement Securitizations - 1

Standard & Poor's Rating Services (S&P) has announced
a refinement of its methodology and assumptions for rating structured
settlement payment securitizations. The revised criteria, effective
December 2, 2009 for all new and outstanding structured settlement
securitizations, incorporate:

S&P's new criteria for structured settlement securitizations appear in an S&P article titled "Update to Methodology And Assumptions And New Supplemental Tests for U.S. Structured Settlement Payment Securitizations".

S&P's revised ratings for structured settlement securitizations will:

Use the latest version of CDO Evaluator (version 5.0)
when analyzing structured settlement securitizations. The CDO Evaluator
is S&P's analytical tool for estimating the defaults and losses of
collateralized debt obligation (CDO) transactions at different rating
levels.

Typically apply:

the largest-obligor default
test to tranches at all rating levels to access a given tranche's
ability to withstand specified combinations of insurance company
defaults, assuming an immediate flat rate of 50%;

the
largest-industry default test or the alternative-industry default test,
which ever is applicable, to tranches at the 'AAA', 'AA+', 'AA', and
'AA-' rating levels, assuming an immediate flat recovery of 60%.

Use
the results of the two supplemental tests without running cash flows to
assess whether the tranche in question is likely to have sufficient
credit enhancement to absorb the losses at each rating level.

To achieve an S&P rating, a structured settlement transaction tranche:

must have sufficient credit enhancement to withstand the level
of defaults the CDO Evaluator generates in relation to the asset
portfolio under the associated cash flow stresses, and

must also pass the two supplemental tests applicable at the given rating level.